Wednesday, September 4, 2013

Obama's increased 'social cost of carbon' raises ire of critics

WASHINGTON—WSJ.COM 9/2/13: A quiet move by the Obama administration to put a higher price tag on greenhouse-gas emissions has sparked a big fight, prompting new legislation in Congress and sniping in academic circles.

Buried in new energy-efficiency standards the Department of Energy released in May for microwave ovens was an administration estimate that the cost to the country for each ton of carbon dioxide emitted was $36 in 2007 dollars—up from its 2010 estimate of $21 a ton.

The number is important because the more costly carbon pollution is deemed to be, the greater the apparent economic benefits of new environmental regulations. The climate plan hinges on such regulations, including restrictions on new power plants that the Environmental Protection Agency is set to release in late September.

House Republicans passed a bill in August that would bar the administration from using the new estimates.

Critics said administration officials calculated the numbers behind closed doors without transparency. "You can't just step in and change the number, especially to that level, without some kind of input," said Rep. James Lankford (R., Okla.), chairman of the House Oversight Subcommittee on Energy Policy. He said he would prefer that Congress determine the price of carbon emissions. U.S. officials and advocates of carbon pricing dismissed the criticism.

Howard Shelanski, who heads the Office of Information and Regulatory Affairs, told the House the revised estimate reflects new research on the impact of climate change.

Energy Secretary Ernest Moniz said the $36 figure is in line with or lower than estimates used by many corporations and national governments. Exxon Mobil Corp. assumes a carbon price of $80 per ton by 2040 for investment decisions, while BP PLC, another oil giant, assumes a $40 price today, according to the companies. The British government pegs the 2020 price at the equivalent of about $47 a ton.

The administration has used "the most mainstream, the most well-validated, the most broadly accepted methodology for assigning benefits," said Michael Livermore, a cost-benefit expert at the University of Virginia law school. He said "the entire process has been on the record."

Putting a price on carbon emissions assumes that increased levels of carbon dioxide in the atmosphere will lead to greater climate change, which in turn is assumed to cause more hurricanes and rising sea levels. Not everyone agrees with those assumptions, which are shared by nearly all climate scientists. Even those who agree that climate change is bad disagree about how much it is worth today to prevent an additional hurricane in, say, 2050.

The effort to put a price tag on carbon emissions has been years in the making. Under the George W. Bush administration, a federal appeals court rejected new fuel-economy rules because they didn't put a price on greenhouse-gas emissions and, according to the ruling, understated the potential benefits of regulation. "We recognized the link between greenhouse gases and climate change, but the process of putting a dollar value on the impacts of climate change was extremely uncertain," said John Graham, who headed the Office of Information and Regulatory Affairs in the Bush administration.

Early in the Obama administration, officials from nearly a dozen agencies, including the Department of Energy and the EPA, took a first stab, using several computer economic models. The administration said the figure would be continually revised.

Critics maintain the whole question is too uncertain to be entrusted to computer models. They fear the higher $36-a-ton figure will be used to justify tighter regulation on coal-fired power plants, which could raise consumers' electricity costs.

Robert Pindyck, an economics professor at the Massachusetts Institute of Technology, slams the models in a coming paper to be published by the National Bureau of Economic Research, saying they use essentially arbitrary inputs and give a misplaced illusion of scientific certainty.

Though his work has given ammunition to skeptics of global-warming science, Mr. Pindyck said his point is really about the difficulty of modeling possible catastrophic impacts of climate change. "We know there's a social cost of carbon, and we know it's above $0," he said. "If anything, the cost of carbon could be higher" than the administration's models suggest.

Creators of the models concede they aren't perfect. But Yale economics professor William Nordhaus, the creator of the best-known model, said they have improved and can provide a starting point for policy makers. Damage estimates from warming "are based on literally hundreds of studies of the impact of climate change on different sectors of the economy," he said.